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spk00: Good day and welcome to your Canoe third quarter 2021 earnings call. All lines have been placed on a listen-only mode and the floor will be open for your questions and comments following the presentation. At this time, it is my pleasure to turn the floor over to Kamal Hamed, Vice President of Investor Relations. The floor is yours.
spk04: Welcome to Canoe's quarterly earnings conference call. My name is Kamal Hamed and I'm the VP of Investor Relations at Canoe. Today I have with me investor, chairman, and CEO, Tony Acola, Senior Vice President and Interim CFO, Renato Giger, and Senior Vice President of Finance and Chief Accounting Officer, Ramesh Murthy. Tony will provide an update on the progress we have made since our last call. Renato and Ramesh will then review our financial results for the quarter and turn it back to Tony, who will provide closing remarks. We will then open up the call for questions. Please be advised that we may make forward-looking statements based on current expectations. These are subject to significant risks and uncertainties, and our actual results may differ materially. For a discussion of those factors that could affect our future financial results and business, please refer to the disclosure in today's earnings release and on our most recent Form 10Q and 10K and reports that we may file on Form 8K of the SEC. All of our statements are made as of today and are based on information currently available to us. Except as required by law, we assume no obligation to update any such statements. During this call, we'll discuss non-GAAP financial measures. You can find the reconciliation of these non-GAAP financial measures to GAAP financial measures in today's earnings release, which can be found on the IR section of our website.
spk03: With that, I'll turn the call over to Tony. Thank you, Kamal. Thank you, everyone, for joining us today. Before discussing the third quarter, I want to take a quick look back at what we've accomplished so far. We first took ownership of the past, and then we focused on the present and the future. We assembled a qualified seasoned board with public company experience and continue to strengthen the management team. We refined our strategy and go to market and were the first EV SPAC to rationalize our plan. No good deed goes unpunished. And as we discussed in our Q4 2020 earnings call, we are now seeing some of our peers adjust their guidance. As part of our refounding, we instituted public company discipline. and refined our strategy to focus on maximizing return on capital and creating long-term shareholder value. These included expanding our TAN to an estimated 4.4 million vehicles by developing three new derivatives on our multi-purpose platform design. Targeting monetization touchpoints to reach multiple owners across the vehicle lifecycle via upfitting, customization, and over-the-air services and more. Designing our proprietary asset management software platform which will enable CUNY customers to manage all vehicles in their household with easy access to our ecosystem of service providers and exiting low to no return on capital businesses, and prioritizing investments in our own IP. We have grown our IP portfolio by 144% to over 127 pending or registered patents since the beginning of the year. Increase focused on design, ADAS, and chassis. We will continue to prioritize IP that drives shareholder value. Our team has grown by 87% since the beginning of the year. We now have approximately 700 employees and 100 contractors and have strengthened core areas including engineering, powertrain, ADAS, business functions, FP&A, customer journey, and IT. We diversified our footprint beyond California by adding locations in Texas and Michigan, opening up additional labor pools at a lower cost. You've heard me say it before. Our discipline is big news or no news. We completed more than 500,000 miles of beta testing and validation, and our next big milestone will be getting gamma vehicles into the hands of our potential customers. We selected Prior Oklahoma as the site of our own facility and secured up to $300 million in non-diluted incentives, and just recently announced that we selected Panasonic, a pioneer and world-class battery manufacturer, as our battery supply partner. I would like to personally thank Alan Schwan the president of Pena, for his leadership and the entire Panasonic team for their support. We assessed numerous suppliers and selected Panasonic because they are the best. They have an unquestionable track record with billions of cells on the road today for Tesla. In our view, Panasonic operates one of the fastest, safest, lines and they are serious about their commitment to being environmentally friendly. Selecting Panasonic enabled us to deliver enhanced safety and lower cost of ownership to our customers. Earlier this year, we selected Oklahoma as the location for our own manufacturing facility. Today we are excited to announce that we have expanded this partnership to include Arkansas and additional locations in Oklahoma. Our corporate headquarters will be relocated to Bentonville along with an advanced manufacturing industrialized facility, technology hubs in Tulsa and Fayetteville to support R&D in electronics, powertrain, battery, vehicle engineering, and testing, a software development center in Tulsa and a customer support and finance center in Oklahoma City. California will maintain its current focus on engineering and vehicle design. Combined, these facilities are expected to employ as many as 1,200 people, providing high education and jobs in the region. Now, with these final pieces in place, We will now focus on completing definitive agreements with each state, which will include approximately 100 million in additional non-diluted financial incentives, making the total approximately 400 million. With these agreements, we are targeting approximately 100 million in vehicle orders with the states and universities where we are locating these facilities. I'd like to thank Governor Stitt and Governor Hutchinson and their teams for their support and commitment in championing advanced manufacturing jobs and high-tech innovation opportunities in their states. Their forward thinking will create high-tech jobs in their states for the new EV economy. I am also honored to announce that we will be partnering with the George Kaiser and the George Kaiser Family Foundation to help in their transformation of Tulsa into a vibrant and inclusive economy while helping us with recruiting, education, and diversity of our workforce. Our thanks also extends to other great families, organizations, tribal nations, and local governments in the region who share and support our vision. In light of our expanded partnership with Arkansas and Oklahoma, we are now able to accelerate our advanced manufacturing industrialization facility in the U.S. ahead of VDL Medcar, addressing growing demand for the LV delivery and the LV, which will avoid a 25% tariff on cargo vans imported into the U.S., putting us ahead of schedule. create a direct link between our prior factory and our industrialization facility and produce the LVD and other LV variants on the same production line. We will accelerate our advanced manufacturing production in the U.S. to begin before Q4 2022. Given these advancements, By the end of November, we will reprioritize our relationship with VDL Medcar. We have been focused on reducing execution risk as Europe and the Netherlands are still struggling with pandemic inflation, shipping, and taxation. As for our progress towards production, we have engineering design is complete and sourced for our LV Gamma builds. And here is a sneak peek at what we are doing in the United States with one of our partners. Please navigate to the webcast landing page and access the video link toward the bottom left of the page. We will pause briefly while you watch the video. As you can see, the progress on gamma, which is our last step prior to production, and we're excited to get vehicles into the hands of our customers. And now for our financial results. Renato.
spk06: Thank you, Tony. Our third quarter of 2021 results are as follows. Research and development expenses of $59.4 million for the quarter compared to $18.9 million in the prior year period. Excluding $5.8 million of stock-based compensation, research and development expense was $53.6 million. SG&A expense was $45.5 million for the quarter, compared to $8.4 million in the prior year period. Excluding $13.3 million of stock-based compensation, SG&A expense was $32.2 million. Gap net loss was $80.9 million for the quarter, compared to a gap net loss of $23.4 million in the prior year period. Gap net loss in the third quarter of 2021 included a $25.8 million non-cash gain on the fair value change of earn-out shares liability related to the periodic remeasurement of the fair value of our contingent earn-out shares liability. Adjusted EBITDA was negative $85.8 million for the quarter compared to negative $20.1 million in the prior year period. Ramesh.
spk02: Thank you, Renato. Turning to the balance sheet and cash flow, we ended the quarter with $414.9 million of cash and cash equivalents. Cash used in operations for the nine months ended September 30, 2021, was $180.6 million compared to $65.1 million in the prior year period. Capital expenditures were $74 million for the nine months ended September 30, compared to 1.2 million in the prior year period. Turning to our guidance, for the fourth quarter of 2021, we anticipate the following expenditures, approximately 95 to 115 million for operating expenses, excluding stock-based compensation and depreciation, and approximately 60 to 80 million for capital expenditures. Before we open the call up for Q&A, I'll turn it over to Tony for closing remarks. Thank you, Ramesh.
spk03: It's been a year of milestones and growth. I want to thank the board, the entire canoe team, and all our partners for their hard work and dedication. We would now like to open the call for questions. Operator?
spk00: Thank you. The floor is now open for questions. If you do have a question, please press star 1 on your telephone keypad at this time. If you're using a speaker phone, we ask that you pick up your handset to provide the best sound quality. Again, if you do have a question or comment, please press star 1 on your telephone keypad at this time. Please hold a moment while we poll for questions. We'll take our first question from Craig Irwin with Roth Capital Partners. Please go ahead.
spk05: Good evening, and thanks for taking my questions. So, hey, that's really exciting progress with the gamma vehicles. I love the video, as always. Cool videos. Can you maybe remind us the size of the gamma fleet you're going to field and the technical capabilities of this fleet? You know, do you expect to use these vehicles in some of your partnerships as early test beds for some of the ADAS stuff that you've been looking at? You know, can you help us shape out sort of what the real technology development will be on these platforms?
spk03: So we'll be focused on about 120 to 150 of those vehicles, and some of them will be in the hands of potential partners.
spk05: Understood, understood. And then, you know, there's been a scarcity of marketing vehicles, right, you know, You do get vehicles to some of these major trade shows, but I think there's quite a lot more demand across the country because, you know, when people see the car in person, it's a very different response than sometimes, you know, seeing it in a two-dimensional video or even, you know, a picture. You know, what's the potential for some of these vehicles maybe being made available for ride and drive or as marketing vehicles over the next couple of years?
spk03: Yeah, we'll be doing selective events in early to mid-next year to bring people through the vehicles. We'll do some road shows. We've already started a few very selective and quiet ones, and we'll continue to do those.
spk05: Understood. Yeah, and I attended one. It was fun. So... Completely understand the reprioritization of VDL NEDCAR, right, given that you guys are moving faster and bringing online production and executing ahead of sort of the original game plan. You know, I noticed there was a $26 million payment to NEDCAR in the quarter. Can you maybe discuss, you know, what you see the relationship possibly looking like? You know, I know there's, you know, number of weeks for you to still finalize this, but what's your vision for how NEDCAR fits into the future of Camille?
spk03: So, Craig, you know, we took a bit of a punch in the face, obviously, in the beginning when we said, hey, we were going to have VDL, NEDCAR as phase one, and industrialization and our manufacturing in phase two and three. And We did that because that was the right thing for us to do and to relay to the market while we were working out and mitigating risks and finding our state partners. We've since been able to do that, including the continuing pandemic issues, plus the demand for more of the LVD rising fast. we obviously were working on the track to get it closer to where our ground zero manufacturing is going to be. So all those things, you know, we just got lucky. They all came together. And I personally have a very good relationship with the Vandele family. And if you remember way back when I said this, I said, you know, we're using it as a backfill to get things figured out, you know, here in the U.S., but that it was really for geographic expansion into Europe. And so now that becomes more clear. We'll continue our discussions with them through the month to figure out what that looks like. We're not worried about the 26 million. We have a very good relationship with them. We have very little leakage of that. We'll have some if we choose to reprioritize the timing. But we didn't ship any of the equipment that we're shipping into the industrialization center. So everything kind of worked out. Actually, costs kind of come in better, right? And we are bigger fans of owning our own facilities than we are contract manufacturing because there are inherent risks with that, having it out of your control. And so I think we just keep punching out these things and tightening it up and bringing it to center and executing on what we say we are, and to the extent we can, pulling it forward.
spk05: Excellent, excellent. And the last question for me, can you maybe update us on the CapEx for your company-owned manufacturing, what your expectations are over the next number of quarters? And, you know, it's incredibly impressive to pull forward capacity in this environment where, everybody's complaining that they can't get delivery of equipment because of this global supply chain issue. If you could talk a little bit about how you work with your partners to pull this off and what gives you the confidence that this is materializing.
spk03: Well, I think there are still every company is kind of going through some kind of impact with inflation and scarcity of materials. I think the fact that we had the foresight to bring down our numbers to reasonable numbers that we could raise allowed us to secure realistic supply lines. And we've, you know, obviously I covered the point, you know, and I remember, right, you were one of the ones kind of upset with me in the beginning.
spk01: I gave you a hard time, I did.
spk03: But as you can see now, you know, look, we've been in this space a long time. You know, in our former company, we didn't miss guidance, you know, consensus for 34 quarters. I mean, we intend to, you know, be very realistic and move up, not move down. And, you know, there is, we've got to keep it still conservative, and we're going to continue to do that. But we continue to mitigate all those steps. If they're really good about the supply line, Panasonic doesn't just select anyone, as you probably know. And I think, you know, bringing our partners deeply along with what we're doing, why we're doing it, and what the size and impact is that we can bring, not only, you know, as a TAM, but into the communities and to what the product purpose is. So I think, you know, we continue to gain supporters. but look, you know, we've got to keep making first downs here and win the game.
spk05: Excellent. Well, congrats. You've beaten my numbers, I think, three-quarters in a row now, so it's a good place to be, and I'll hop back in the queue. Thanks, man.
spk00: We'll take our next question from Jaime Perez with RF Lafferty. Please go ahead.
spk01: Hey, good day, everybody. Thanks for taking my question. So... You opened up in a U.S. facility on the fourth quarter of 2020, which is next year. How much of the lead equipment have you ordered? What's the schedule for tooling and pre-production? So you could give us a little bit of color on the progression of getting to the manufacturing stage.
spk03: We obviously feel good enough that we'll be ahead of Q4 with our suppliers. We're currently mitigating a couple items right now. but all of them will come in before the Q4 timeline. So we're in positive territory right now. We have most of the stuff being built and or built, and we are continuing to monitor the situation, make sure nobody slips, and where we see anything, we have mitigation strategies in place. And we're 100% sourced Our engineering is locked. I mean, we've made a lot of progress and, you know, deep compliments to Sohil and his team for what they've pulled off. They've been working nonstop.
spk01: Yeah, no, the company has made great progress since last year, especially when you took over. Now, the Arkansas Advanced Industrialization Facility, I mean, how different is that from the facility in Oklahoma? Yeah.
spk03: Oh, it's very different. This is an advanced manufacturing facility that will allow us to produce vehicles for unique use cases as well as accelerate our testing into gamma. We're looking for ways to take down the traditional go-to-market way, and this will produce vehicles that we will sell as well. So it gives you a valve. Plus that valve is for your advanced innovation, which is connected. If you notice, we've basically laid out for you guys an entire corridor strategy of how you get the labor shed and how you get the best arbitrage and how you get an amazing workforce and community involvement. So that facility will be an area of innovation for us and rapid prototyping so we can push through gamma faster on the other derivatives. and get product to market from there while we're tooling up in the factory and prior.
spk01: Does that make sense? Yeah, thank you for the response. That's all the questions I have. Thanks a lot. You bet.
spk00: Again, if you do have a question or comment, please press star 1 on your telephone keypad at this time. We'll take our next question from Amit Dayal with HC Wainwright. Please go ahead.
spk07: Thank you. Good afternoon, everyone. Tony, just to begin with, with respect to the Panasonic relationship, have you committed to any minimums on the battery orders from them?
spk03: Yes, we have. And we have minimums in excess of what we have projected to the market, if that's your question.
spk07: Okay, thank you. And then, you know, as you get closer to, commercializing the offerings. I mean, have you sort of narrowed down the pricing range for the vehicles, or should we expect it to be similar to kind of what you were guided for, or any change on that front?
spk03: Yeah, there's a little bit of creep going on. You know, we're mitigating it in some advantaged areas. You know, we've reduced our cost significantly by accelerating the site by about $6,000 to $8,000 a unit that we would have been carrying if we were supplying into the U.S. from Europe. So that is a positive for us, obviously. But I would say we'll see some creep like everybody else, but I think my projection is we'll be below others.
spk07: Okay, thank you. And then the $100 million in orders from, you know, Arkansas and Oklahoma universities and the state, are these definitive agreements or just sort of MOE level type agreements?
spk03: Yeah, these are discussions that we're having, and we'll finalize those in the definitive agreements. But, you know, you'll see the press releases from the states. I mean, These are two amazing governors that are businessmen. They get it. They know how to help. They want to create, you know, high-tech jobs. They want to, you know, create this as a new industry in the corridor. And so they've been extremely helpful. And, you know, obviously we're always conservative, but we will be focused on having those in the definitive agreements.
spk07: That's all I have. Thank you.
spk03: You bet.
spk00: This concludes our question and answer session. I would now like to turn the call back over for closing remarks.
spk04: Thank you. Thank you all for joining us today. Feel free to reach out with any questions or if you want more information, and we look forward to updating you in about four months. Thanks, everybody.
spk03: Thank you, everyone.
spk00: This does conclude today's teleconference. We thank you again for your participation. You may disconnect your lines at this time and have a great day.
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